Market Place; Cautious Outlook On AIDS Drugs

By Milt Freudenheim

Published: April 1, 1988

ANNOUNCEMENTS of progress in research on drugs and vaccines to combat AIDS have come thick and fast, sometimes generating dramatic gains in the stocks of small companies. But many gains have been followed by equally steep setbacks, and experts who follow drug and biotechnology stocks caution that payoffs are unlikely before the 1990's.

One positive exception is the British company Wellcome P.L.C., whose American subsidiary, Burroughs-Wellcome, has shown promising results with its AZT Retrovir drug, which slows the progress of disease in AIDS patients. American depository receipts for Wellcome stock started trading this week at about $8.50, and closed yesterday at $8.366 at the going exchange rate. In London, Wellcome shares have quadrupled since the company went public in February 1986 and are up 23 percent since Jan. 1, with a price-earnings ratio of about 16, said Jonathan S. Gelles, an analyst at Wertheim Schroder & Company.

''Burroughs Wellcome's AZT is the only game in town,'' said Steven M. Kaye, manager of the Fidelity Select Biotechnology Fund in Boston. ''They spent $80 million and did the right studies, which are still going on.'' Wellcome is also developing a blood-clotting drug that is expected to be ready to compete with TPA, made by Genentech Inc., probably in late 1989.

''There are a million stocks that go up and down on AIDS stories,'' Mr. Kaye said. ''The scientific papers are published and well discussed in the medical community before the word ever gets out. For every Burroughs, there are probably another 100 or 200 that are scams.''

Genentech, the San Francisco-based biotechnology company, is also working on an AIDS virus-killer. Larger companies in the race to attack acquired immune deficiency syndrome include the Schering-Plough Corporation, the Bristol-Myers Company, Eli Lilly & Company and Hoffman LaRoche Inc.

''We are not recommending any of the stocks on the basis of near-term valuation of their AIDS products,'' said Peter F. Drake, a biotechnology analyst at Vector Securities International in Chicago. ''However, the power of AIDS from an investment standpoint should not be overlooked. New developments are big psychological boosters to the stocks.''

He noted that Imreg Inc., a small New Orleans-based company, had announced on March 8 that its Imreg-1 drug had reduced progress of the virus in AIDS patients with early symptoms. Scientific data on the tests have not yet been published, however. Imreg stock closed yesterday at $15.625, down 37.5 cents.

Two years ago, ICN Pharmaceuticals Inc. announced that its drug, ribavirin, had been successful. But Federal authorities disallowed the test results and are now conducting further trials.

Looking ahead to the mid-1990's, Kenneth J. Oberman, who manages the Oppenheimer Global Biotech Fund, said he had invested in some companies that produce ''colony stimulating factors, which add to the body's white blood cell count, thus strengthening the immune system.'' Mr. Oberman listed Amgen and Genetics Institute.

''Throwing money is not the solution,'' Mr. Oberman said. ''It is finding people who have original ideas. Sometimes these ideas look absolutely insane. For example, AZT was a cancer drug that didn't work.''

He said the essential breakthroughs might come from ''some Joe Blow in his laboratory with a strange idea, or a French doctor in Africa who is willing to license his discoveries to everybody in sight. There's going to be a lot more money lost than made in betting on AIDS products over the next few years.''

At least four companies are working on AIDS vaccines. They include Bristol-Myers; the Repligen Corporation, which is working with Merck & Company; Microgenesis Inc., a privately held concern in New Haven, and the Chiron Corporation, which has a joint venture with the Ciba-Geigy Corporation, the Swiss pharmaceutical company.

Mr. Drake at Vector likes Chiron as ''the pure play on the development of an AIDS vaccine as well as other vaccines.'' He said Chiron might show earnings late next year. It is also working on a herpes vaccine and, with Johnson & Johnson, on a ''growth factor'' that speeds the healing process of burns or skin abrasions.

As a speculative buy, Mr. Gelles at Wertheim suggests the Imre Corporation of Seattle, which is selling a filter that clinical trials have shown to benefit AIDS patients in treating a blood disorder and cancer that afflicts them. Takeda Chemical Industries, the Japanese drug giant, has a 2 percent stake in Imre. Imre stock closed yesterday at $4.50.

Mr. Gelles also recommends the Cambridge Bioscience Corporation, an over-the-counter company that has filed for F.D.A. approval of a five-minute AIDS diagnostic test kit to be sold to doctors. It will be marketed by Baxter Travenol Laboratories Inc., probably late this year. Mr. Kaye is holding Cambridge Bioscience, as well as Genentech and Chiron. He noted that Cambridge Bioscience had enlisted important Harvard University scientists as advisers. Cambridge Bioscience was recently recommended by Shearson Lehman Hutton Inc., after which its price moved from $9, to $14.50, in 10 days. It closed at $13.50, up 12.5 cents, yesterday. Analysts predict that Cambridge Bioscience will begin to report earnings late this year.